[From The Art of ‘Ware (Version 2.0) by Bruce F. Webster (forthcoming), Chapter 1, “Starting Out”]

These factors govern the success of the company: Tao; the economy; the marketplace; leadership; management.

Tao means running the company so that all the employees share the same vision of success.¹

“Tao” (literally, “the Way”) is probably the most difficult concept — and task — introduced in this book. Why? Because it is hard to achieve success for a diverse group of people, and the more people involved, the harder it gets. Universal stock options help, but they are not by themselves sufficient.

It is also difficult because there is a moral element involved. For Tao to be achieved there has to be an outstanding level of reciprocal dedication, loyalty, and trust between the employees of the company at all levels. This does not mean that employees are not accountable to their managers or vice versa; quite the contrary. But there is a Taoist paradox at the heart of this: the manager must focus on the needs of the employee, while the employee must focus on the needs of the company. This is a powerful situation, since each acts as the other’s advocate, each helps the other to succeed, and each (in theory, at least) trusts the intentions of the other.

It breaks down, of course, if that mutual advocacy isn’t there. When both manager and employee place the needs of the company as paramount, the stage is set for burnout, declining quality of results, and turnover. When both place the needs of the employee as paramount, then the company suffers and, eventually, so does the employee. And the last situation — where the manager places the needs of the company first, while the employee places his or her needs first — is the classic adversarial management-vs.-labor relationship that has been the source of tremendous conflict, inefficiency, fraud, violence, corruption, waste, and suffering since the start of the Industrial Revolution.

Does Tao guarantee success? No. Does lack of Tao guarantee failure? No. But as market forces continue to dismantle or reorganize the large corporate structures that have dominated the last century (and the mentalities that go with them), firms that seek to achieve and maintain Tao will have a decided advantage.

The economy means buying and selling, lending and borrowing, growth and decay.

Technology-based industries go through waves of prosperity that aren’t always related to the nation or global economy. This still fuels the basic dream of a small group of developers making a fortune, even though cost to market has risen tremendously, and the technical economy now tracks the national economy more closely. Even so, new opportunities can turn things upside down; witness the mad, intense scramble into the original dot.com boom (and bust), as well as the current “Web 2.0″ boomlet.

The economic aspect of product development has to do with cash flow for the company itself: how much money (or credit) is on hand, what monthly “burn rate” of resources is, what additional sources exist, what additional expenses are required or anticipated, what the bottom line is each and every month, and how well future income and expenses can be predicted.

New companies typically must raise sufficient capital to complete an initial product and then successfully bring it to market. That capital may be from sweat equity, personal savings, contract work, advance royalties, private investment, corporate partnerships, or venture firms. Each of these sources has its advantages and its costs; failure to understand these trade-offs can lead a bright young company to the point where it carries the heavy burden of development and marketing without much in the way of rewards.

The marketplace means time to market, ease of development, potential demand, customer requirements, competition, and return on investment.

Success depends on how quickly and cheaply you can bring to market a product that people are willing to buy in sufficient quantities. This means you’ve got to understand both what it is you’re trying to build and who is going to choose to spend their money on it instead of on something else, including equivalent products from other firms. Beyond that, you have to be able to sell your products for a price at which you can make a profit — not just pay back what you spent coming to market, but actually show a return on that original investment. And you have to do this in an arena filled with companies that are better staffed, better funded, better known than yours.

Leadership means the qualities of wisdom, integrity, humanity, vision, and fairness.

Wisdom means knowing the right thing to do, and the right reason for doing it. Integrity represents the ethical and moral dimensions of business that are sometimes neglected in executive offices, particularly those of sales and marketing. Humanity involves remembering that every decision made affects people’s lives — including those in competing firms. Vision is the quality of seeing beyond the next quarter’s results and into the future. Fairness mixes compassion, justice, and evenhandedness appropriately.

These qualities are uncommon, and are seldom found in equal and sufficient proportions in a single person. But that does not excuse their absence, nor does it relieve us of the effort to achieve them. They must reside in those who lead the company, and they must be expected of employees at all levels.

Management means organization, communication, acquisition of resources, and budgeting.

Many start-ups are run by technical or visionary individuals who do not fully understand or appreciate the role of management in a successful company. This can lead to failure to recognize or reward contributions, exhaustion of resources, inefficient use of time, and even legal problems. Management skills should be as important in a company, division, or product group as technical skills.

Every CEO will have heard of these five factors, but success depends upon truly understanding them.

When you examine companies for success or failure, you will usually find that the successful ones understand and deal with all five factors — Tao, the economy, the marketplace, leadership, and management — while the unsuccessful ones have misunderstood or neglected one or more of these factors.

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1 Compare Suntzu pingfa (Chapter 1, “Calculations”): Therefore, go through it by means of five factors; compare them by means of calculation, and determine their statuses: one, Way, two, Heaven, three, Ground, four, General, five, Law.

The Way is what causes the people to have the same thinking as their superiors; they may be given death, or they may be given life, but there is no fear of danger and betrayal.

Heaven is dark and light, cold and hot, and the seasonal constraints.

Ground is high and low, far and near, obstructed and easy, wide and narrow, and dangerous and safe.

General is wisdom, credibility, benevolence, courage, and discipline.

Law is organization, the chain of command, logistics, and the control of expenses.

All these five no general has not heard;

one who knows them is victorious, one who does not know them is not victorious. (Sonshi online translation)